Callaway 2013 Annual Report Download - page 92

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F-22
In December 2011, the Company conducted an impairment test on goodwill related to its reporting unit in Australia
and determined that the estimated fair value for this unit was less than the unit’s net book value including goodwill. As
a result, the Company recorded an impairment charge of $1,120,000 to write-off the goodwill balance related to this
reporting unit which was recorded in general and administrative expenses in the accompanying consolidated statements
of operations for the year ended December 31, 2011.
Goodwill at December 31, 2013 increased to $29,212,000 from $29,034,000 at December 31, 2012 due to an increase
of $178,000 in foreign currency fluctuations. Gross goodwill before impairments at December 31, 2013 and 2012 was
$30,961,000 and $30,783,000, respectively.
Note 9. Investments
The Company owns preferred shares of TopGolf International, Inc. (“TopGolf”), the owner and operator of TopGolf
entertainment centers. In connection with this investment, the Company has a preferred partner agreement with TopGolf
in which the Company has preferred signage rights, rights as the preferred supplier of golf products used or offered for
use at TopGolf facilities at prices no less than those paid by the Company’s customers, preferred retail positioning in the
TopGolf retail stores, access to consumer information obtained by TopGolf, and other rights incidental to those listed.
During 2013, the Company invested an additional $13,637,000 in preferred shares of TopGolf, thereby increasing
the Company's total investment as of December 31, 2013 to $37,605,000. The Company’s total ownership interest in
TopGolf, including the incremental investments completed in 2013, remains at less than 20% of the outstanding equity
securities of TopGolf. In addition, the Company does not have the ability to significantly influence the operating and
financing activities and policies of TopGolf. Accordingly, the Company’s investment in TopGolf is accounted for at cost
in accordance with ASC Topic 325, “Investments—Other,” and is included in other assets in the accompanying
consolidated balance sheets as of December 31, 2013 and 2012.
Note 10. Non-Controlling Interests
Through June 30, 2013, the Company had a Golf Ball Manufacturing and Supply Agreement with Qingdao Suntech
Sporting Goods Limited Company (“Suntech”), in which Suntech manufactured and supplied certain golf balls solely
for and to the Company. In connection with the agreement, the Company provided Suntech with golf ball raw materials,
packing materials, molds, tooling, as well as manufacturing equipment in order to carry out the manufacturing and supply
obligations set forth in the agreement. Suntech provided the personnel as well as the facilities to effectively perform these
manufacturing and supply obligations.
In July 2013, the Company terminated the Golf Ball Manufacturing and Supply Agreement and certain ancillary
agreements with Suntech. As a result, during the year ended December 31, 2013, the Company recognized charges of
$5,579,000, the majority of which was related to the write-off of certain manufacturing equipment and inventory located
at the Suntech manufacturing facility, and was recognized in cost of sales within the Company's golf balls operating
segment.
Due to the nature of the arrangement, as well as the controlling influence the Company had in the Suntech operations
through July 2013, the Company was required to consolidate the financial results of Suntech in its consolidated financial
statements in accordance with ASC Topic 810, “Consolidations.” For the years ended December 31, 2012 and 2011, non-
controlling interest related to Suntech in the consolidated statements of shareholders’ equity included net profits of
$259,000 and $587,000, respectively. The Company deconsolidated the financial results of Suntech in 2013 as a result
of its termination of the Golf Ball Manufacturing Supply Agreement.
Suntech is a wholly-owned subsidiary of Suntech Mauritius Limited Company (“Mauritius”). The Company had a
loan agreement with Mauritius in order to provide working capital for Suntech, under which the Company loaned Mauritius
a total of $3,200,000. At December 31, 2012, $1,788,000 of the loan balance remained outstanding in other long-term
assets in the accompanying consolidated balance sheet. During the fourth quarter of 2013, the Company reached an
agreement in principle which allowed the Company to offset the remaining loan balance with outstanding accounts
payable. In January 2014, Company finalized an Agreement Regarding Settlement and Mutual Release resulting in a net
charge of $65,000 as of December 31, 2013.